For investors in Asian hedge funds, it was China and not the region's hottest major market, Japan, that provided the best bang for the buck in 2013 – a result set to ensure greater capital inflows into steadily growing China-focused funds as reported by Reuters.
Scoring with heavy bets on Internet, tech and casino stocks, hedge funds investing in the Greater China region gained an average 20 per cent last year compared to a flat MSCI China index, their best showing in five years.
By contrast, Japan-focused equity funds gained an average 26 per cent last year, data from Eurekahedge showed, lagging a 29 per cent rise in the Nikkei 225 index in dollar terms – a performance similar to low-cost exchange traded funds and insufficient to justify hedge funds' hefty fees.
The outperformance helped encourage Chinese capital to emerge as a growing force in an industry that is dominated by US and European institutions such as pension funds and endowments.
China funds will also likely build on net inflows last year as top performers such as Avant Capital Eagle Fund and LBN Advisers China fund lure investors. Eurekahedge estimates China funds raised a net USD1.2 billion in 2013, which compares with net outflows of USD323 million for Japan funds.
Among the biggest China hedge funds, winners included the USD2 billion Dragon Billion China Fund which gained 11.2 per cent through the end of November, the fund's newsletter showed.
Others include the USD120 million Springs China Opportunities Fund (+36 per cent), the USD92 million Legends China Fund (+39.3 per cent) and the USD70 million Dalton Greater China Fund (+31.9 per cent through Dec 27), according to data confirmed by their money managers.
Azentus Capital Management Ltd. and Myriad Asset Management Ltd., two of Hong Kong’s large hedge funds, had the best annual returns since inception, aided by Japan bets and investments outside of the region reports Bloomberg.
The Myriad Opportunities Master Fund, a USD2.4 billion multi-strategy fund, returned about 20 per cent in 2013, said two people with knowledge of the performance. Azentus’ USD840 million Asia-focused global multi-strategy fund rose 16.4 per cent, said a person familiar with the return.
The Nikkei 225 Stock Average surged 57 per cent in 2013 as Prime Minister Shinzo Abe and the Bank of Japan introduced unprecedented stimulus to end 15 years of deflation. The S&P 500 Index rose almost 30 per cent, triple the gain of the MSCI Asia-Pacific Index, amid signs of a recovering US economy.
The Eurekahedge Asia Hedge Fund Index gained 15.7 per cent over the 12 months, the biggest annual advance in four years, as Japan funds benefited from the biggest single-year rally in the country’s stocks in 41 years and China managers beat the Hang Seng Index, according to the Singapore-based data provider.
Azentus made money from Greater China as well as US and European stocks influenced by Asian activities, said one of the people. Ability to profit from both undervalued and overvalued securities helped ease swings in monthly performances. Its worst monthly loss during the year was about 1 per cent.
Asian hedge funds as a whole outperformed their European peers’ 9 per cent average return last year and 10 per cent for their North American counterparts.
Ivaldi Capital LLP, a UK-based multi-strategy hedge-fund manager, hired former Morgan Stanley strategist Rob Hart to start investing in Asian gaming, property and consumer stocks.
Hart began trading in Singapore last week, William Potts, Ivaldi’s London-based chief executive officer, said in an e-mail yesterday. Hart, who spent 12 years with Morgan Stanley, left the US bank in 2008 to join Singapore-based Sansar Capital Management LLC, where he helped manage a portion of investments in property, gaming and large-cap stocks in Hong Kong and China, he said. He left Sansar in March before joining Ivaldi, he said.
Ivaldi, which was founded by former Citigroup Inc. prime brokers, hires managers such as Hart to run a series of strategies that feed into its two funds. Hart’s addition marks the third sub-strategy in Asia that Ivaldi is backing and ninth globally, Potts said, adding that successful managers are allowed to raise capital directly from other investors after at least two years.
Ivaldi is attracting managers at a time when larger institutions increasingly dominate the hedge-fund investor base, making it harder for small startups to raise money. Fifty-seven per cent of the 167 Asian long-short equity hedge funds, which began trading with less than USD50 million, still manage less than that amount after an average of 5.3 years in existence, according to a Citigroup Inc. survey released in December, citing data from Singapore-based Eurekahedge.
Globally, an estimated 816 new hedge funds started in the first three quarters last year, 39 per cent of the full-year number during the 2005 peak, according to Chicago-based data provider Hedge Fund Research Inc.
One of 2012's biggest Asian hedge fund launches posted "respectable" returns in its first full year.
Tybourne Capital Management was up 16.04 per cent last year, the Wall Street Journal reports. Better than the average hedge fund both globally and in the Asia-Pacific region, but far behind the broader markets, which led co-founder Eashwar Krishnan to describe the performance as "respectable" in a letter to investors.
Krishnan, Lone Pine Capital former Asia chief, and former Goldman Sachs capital introductions executive Tanvir Ghani, set up Tybourne in Hong Kong in the summer of 2012. The Asia-focused long/short equity strategy returned 5 per cent in the second half of that year.
Krishnan told clients that he expects better things in 2014. He wrote that the fund has major exposure to "less fashionable markets in Asia," including Southeast Asia and China. "The underperformance and relative valuation discounts in developing Asia vis-à-vis developed markets are approaching levels that we believe are very compelling."
Japanese fund manager Simplex Asset Management Co. plans to launch a hedge fund in Hong Kong to be led by the former Asia trading head for Royal Bank of Scotland Group Kin Cheung.
The fund will be multi-strategy, using derivatives to take aim at Asia's volatile markets as well as placing bets on stocks going up or down, known as long/short, during less volatile periods.
Cheung left RBS in September, one of a series of departures from the state-controlled UK lender as it retrenched in Asia. RBS in 2012 sold its Asian cash equities, corporate finance and equity capital markets business to Malaysia's CIMB Group Holdings.
Simplex, with USD3.5 billion in overall assets, has a long history in the Japan funds industry, first setting up in 1999. The booming Japanese stock market has been a boon for the firm, bringing it increased interest from overseas investors.